FEDERAL COURT OF AUSTRALIA Trust Company (Nominees) Limited v Angas Securities Limited [2017] FCAFC 187 Appeal from: Trust Company (Nominees) Limited, in the matter of Angas Securities Limited v Angas Securities Limited (No 4) [2016] FCA 1240 File number: NSD 1913 of 2016 Judges: ALLSOP CJ, PERRAM AND MOSHINSKY JJ Date of judgment: 27 November 2017 Catchwords: COSTS – where primary judge awarded trustee its costs on party-party basis only – where trust deed provided right of indemnity for all expenses incurred by trustee in executing deed and against proceedings, costs, claims and demands in respect of any matter relating to the deed – whether primary judge erred in exercising costs discretion so as to prevent trustee from calling on indemnity to recover difference between actual costs expended and party-party costs awarded Legislation: Corporations Act 2001 (Cth) Part 2L.8, s 283HB Cases cited: Colgate-Palmolive Company v Cussons Pty Ltd [1993] FCA 536; (1993) 46 FCR 225 Trust Company (Nominees) Limited v Angas Securities Limited, in the matter of Angas Securities Limited [2014] FCA 1397 Date of hearing: 20 November 2017 Registry: New South Wales Division: General Division National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Category: Catchwords Number of paragraphs: 19 Counsel for the Appellant: Mr B Walker SC with Mr R Foreman Solicitor for the Appellant: King and Wood Mallesons Counsel for the Respondent: Mr A Myers QC with Mr B Gibson Solicitor for the Respondent: Johnson Winter & Slattery ORDERS NSD 1913 of 2016 BETWEEN: THE TRUST COMPANY (NOMINEES) LIMITED Appellant AND: ANGAS SECURITIES LIMITED Respondent JUDGES: ALLSOP CJ, PERRAM AND MOSHINSKY JJ DATE OF ORDER: 27 NOVEMBER 2017 THE COURT ORDERS THAT: 1. The appeal be dismissed. 2. The Appellant pay the Respondent's costs of the appeal as taxed or agreed. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT THE COURT: 1 This is an appeal, by leave, from an Order made by Beach J on 19 October 2016. That Order concerned the costs of an interlocutory application. The parties to that application were the Appellant, The Trust Company (Nominees) Limited ('the Trustee'), who is the trustee for the holders of debentures issued by the Respondent, Angas Securities Limited ('Angas') and Angas itself. There has been protracted litigation between the Trustee and Angas since 2014. 2 One aspect of this litigation involved the filing of the interlocutory application that resulted in the Order of 19 October 2016. His Honour concluded that both parties had succeeded to some extent on that application but nevertheless took the course of ordering Angas to pay the Trustee's costs of the application on a party-party basis. The picture is more complicated, however, because under the terms of the trust deed the Trustee was entitled to be indemnified out of the trust assets for expenses incurred by it in the course of performing its duties as trustee (subject to an exception for misconduct). Ordinarily, this provision would have permitted the Trustee to recoup from the trust assets any difference between its actual costs and the amount recovered from Angas after taxation. The controversy in the present appeal arises from the fact that his Honour went one step further and ordered that the Trustee not be entitled to recoup from the trust property that difference. The Trustee now submits that his Honour made no finding of misconduct on its part that would have justified depriving it of its right to indemnity in that way, and that his Honour erred in so doing. Angas, on the other hand, submits that his Honour made findings which fully justified the Order his Honour made. 3 For the reasons which follow, the appeal should be dismissed with costs. 4 The interlocutory dispute with which his Honour was seized concerned consent orders which were principally, although not solely, concerned with costs. To understand that dispute and what it means for this appeal it is first necessary to understand some of the background to the broader litigation. Part of that background includes the fact that there are two separate cases in this Court on foot between these parties. The first is entitled Trust Company (Nominees) Limited v Angas Securities Limited and originally concerned efforts by the Trustee in late 2014 to restrain Angas from redeeming investments and also to require it to prepare what was called a three-way cash flow model in respect of its business. This application was made on 17 December 2014 and was largely resolved by Yates J on Christmas Eve: Trust Company (Nominees) Limited v Angas Securities Limited, in the matter of Angas Securities Limited [2014] FCA 1397. The proceeding bears the file number NSD 1333 of 2014 and it is convenient to refer to it, as the parties did, as the 2014 Proceeding. Importantly, although a timetable was set by Yates J for the purpose of determining the costs of the application, this was repeatedly vacated and that issue has never yet been determined. As will be seen, it is these costs which provide the circumstances which give rise to this appeal. 5 This initial encounter between the parties did not resolve all of the issues between them and still less did it quench their enthusiasm for litigation even about small matters, as this appeal shows. In April 2015, the Trustee became persuaded that Angas had committed an event of default under the trust deed. On 29 April 2015, it commenced a fresh proceeding in this Court (NSD 469 of 2015), also entitled Trust Company (Nominees) Limited v Angas Securities Limited, which appears to have been intended to give effect to this view. The Trustee sought orders that its security interest under the trust deed be declared enforceable and that, pending determination of that issue, there be an interim freezing order restraining Angas from paying any money to debenture holders under the trust deed. 6 It was this case that then opened before Beach J on 2 June 2015. Some time after it was opened, it was adjourned, and during the adjournment the parties arrived at an apparent accommodation. The details of this brief cessation of hostilities are not presently material save that the parties agreed that his Honour should, inter alia, make this particular order by consent: 'Subject to the approval of the Court being given under clause 13(a) below, the defendant must pay to the plaintiff within 7 days of that approval the following amounts: (a) $1,506,841.49 for the plaintiff's legal costs, including GST and disbursements; and …' 7 Beach J resolved to give effect to this apparent consensus and made the order by consent. At this point the brief peace which had but shortly held was interrupted by a fresh outbreak of disagreement about what it was that the parties had actually agreed, what their agreement as embodied in the consent orders made by Beach J meant and whether those orders accurately reflected whatever it was that they had agreed on 9 June 2015. The essence of the dispute was twofold. First, Angas believed that the figure of $1,506,841.49 needed to be assessed independently by this Court to ensure that the Trustee's costs had all been properly incurred. Secondly, it transpired that the figure of $1,506,841.49 had included not only costs from the proceeding before Beach J but also those incurred by the Trustee in the 2014 Proceeding before Yates J. Angas submitted that this was quite inappropriate where Yates J had not yet dealt with the costs of those proceedings. Further, Angas contended that the Trustee had failed to disclose to it during the negotiations leading to the consent orders the fact that the $1,506,841.49 included an element within it for the Trustee's costs in the 2014 Proceeding. This was said to be a material non-disclosure. 8 Angas eventually filed an interlocutory application (later amended) seeking, inter alia, the excision from the $1,506,841.49 of the costs from the 2014 Proceeding and, by means of a variety of alternate procedural mechanisms unnecessary to relate, an order that the Trustee demonstrate its entitlement to the balance of the costs. 9 Beach J rejected this latter suggestion and Angas has not sought to disturb that conclusion. On the other hand, his Honour did accept that the costs of the 2014 Proceeding should be excised from the $1,506,841.49. With that background, it is convenient to set out the Order his Honour made on 19 October 2016 by which he determined the amended interlocutory application (noting it is only Order 4 which is now challenged): '1. Within 7 days of the date of this order, the plaintiff is to inform the defendant and the Court of the amount of the costs referred to in order 5 of the orders made on 9 June 2015 (order 5) which relate to the plaintiff's costs of Federal Court of Australia proceeding no. NSD 1333 of 2014 (2014 proceeding costs). 2. Order 5 be varied by reducing the amount of the plaintiff's legal costs and expenses referred to in order 5(a) by the amount of the 2014 proceeding costs. 3. The defendant pay the plaintiff's costs of the defendant's amended interlocutory application dated 21 April 2016 on a party/party basis only. 4. The plaintiff shall not be entitled under the relevant Trust Deed for the First Ranking Debenture Stock dated 19 July 2000 (as amended) to recoup any additional costs incurred in respect of the defendant's amended interlocutory application dated 21 April 2016 save for those ordered under paragraph 3 of these orders.' 10 The effect of Orders 3 and 4 was that Angas would pay the Trustee's costs on a party-party basis but that the Trustee would not be entitled to look to the trust assets to recoup the difference between its party-party costs and its full costs. 11 Mr Walker SC, who with Mr Foreman of counsel appeared for the Trustee on the appeal, submitted that his Honour had erred in concluding that he should make Order 4. He submitted that Beach J's reasons for doing so were at [52]. These were short: '52. As to the costs of the present application, Angas has had partial success but so too has the Trustee. Moreover, I do not consider the Trustee's opposition to this application as being unreasonable. In the circumstances I consider the fair result to be that the Trustee should have its costs, but only on a party/party basis.' 12 Mr Walker expressly denied that his Honour had not given any reasons for his conclusion and submitted only that they were brief. He also drew attention to the Trustee's right of indemnity in cl 17.6 of the trust deed which provided that it should be indemnified 'for all liabilities and expenses incurred… other than a claim arising out of their negligence or wilful neglect or default'. He submitted that once his Honour determined at [52] that the Trustee's opposition to Angas' application was not unreasonable, the Trustee was entitled to indemnity. There was, on this view, no proper basis for making an order in the form of Order 4. 13 In its written submissions, Angas disputed the correctness of the Trustee's construction of cl 17.6 but it is convenient to assume the outcome of that argument in the Trustee's favour as its appeal should be dismissed for at least two other reasons. 14 First, the Trustee's construction of [52] of the reasons of Beach J seeks to read it in isolation and in so doing deprives it of much important context. Part of that context is picked up by the words in the third sentence beginning 'In the circumstances…'. Mr Walker's construction of [52] leads to this being a reference only to the contents of [52] itself. However, there are good reasons to think that the 'circumstances' to which it refers include those set out in the preceding discussion appearing at [48]-[50] in his Honour's reasons. That part of the reasons was concerned with whether the costs of the 2014 Proceeding should be excised from the $1,506,841.49 amount but its significance was, so it seems to us, somewhat broader: '48 Fifth and more generally, the exercise of my supervisory control justifies the variation to the costs order whatever the parties might have privately agreed. There are three dimensions to the supervisory control that I have in the present case: (a) There is the supervisory control over the interlocutory orders that have been made. (b) There is the supervisory control over the Trustee and its activities whether under the Trustee Act 1925 (NSW), Chapter 2L of the Act or otherwise in the Court's equitable jurisdiction including in relation to the costs and expenses that the Trustee has incurred. (c) There is the supervisory control that I have generally over Angas and the Trustee under Part 2L.8 of the Act to ensure that the best interests of debenture holders are pursued by both Angas and the Trustee. 49 I have discussed the first dimension. Let me say something about the other dimensions. Each of these second and third dimensions can in an appropriate case, such as the present, override any private agreement between Angas and the Trustee. The costs order in favour of the Trustee will ultimately be funded by the debenture holders. Accordingly, whatever agreement may have been reached between the Trustee and Angas, I ought not to condone a situation where debenture holders are required to in effect fund the Trustee's costs in circumstances where: (a) those costs relate to another proceeding not before me; (b) those costs are properly the subject of scrutiny in the other proceeding; (c) there is a real issue as to whether there has been a consensus ad idem reached between the parties in the present proceeding in relation to such extraneous costs. 50 There is another related issue. The Trustee's submissions have been premised on the basis that the costs order was the subject of an underlying agreement between the parties each negotiating in and for their own interests and that I ought not interfere but should respect the sanctity of the bargain struck. But in one sense this is an inapposite framework within which to view the present matter. Each of them was in fact bargaining with respect to, in substance, debenture holders' funds. Accordingly, the present case differs from the Harvey, R D Werner and Paino line of authority. Whatever else be said about that line of authority, I am entitled to consider the best interests of debenture holders (as too should the Trustee) in determining whether and if so how I should vary any interlocutory order, particularly one dealing with costs that will have a financial effect on debenture holders. I see little difficulty in varying a consent order based upon a private agreement between the Trustee and Angas when circumstances have been drawn to my attention which satisfy me that the best interests of debenture holders may not have been fully considered. Indeed, such a scenario falls within the circumstances contemplated by Adam P. Brown. I am satisfied that if the costs order includes the costs incurred in proceeding NSD 1333 of 2014, then that is not in the best interests of debenture holders. I propose to exclude such costs from the costs order.' (emphasis added) 15 Mr Myers QC, who with Mr Gibson appeared for Angas on the appeal, submitted that the emphasised words in [49] were precisely the kind of matter that would be relevant to a decision to limit the Trustee's recourse to the trust assets. We agree. The reference to debenture holders not being 'required to…fund the Trustee's costs' can only be a reference to a proposal to pare back the Trustee's right of indemnity. The reasons leading to that statement are inevitably part of the 'circumstances' referred to in [52]. 16 Along similar lines, we would also note the significance of the reference in [48(c)] to the supervisory control conferred on the Court by Part 2L.8 of the Corporations Act 2001 (Cth). That Part contains s 283HB which, it was accepted by the Trustee, authorised the making of Order 4 regardless of whatever cl 17.6 said. It is tolerably clear, in our view, that his Honour was considering the circumstances which might justify Order 4 in paragraphs [48]-[50] and not just the question of excision. 17 Secondly, the lynchpin of Mr Walker's argument is that the second sentence of [52] ('Moreover, I do not consider the Trustee's opposition to this application as being unreasonable') is to be seen as a statement which relates to trust law concepts such as the right of a trustee to recoupment. But a more straightforward reading of the sentence is that it is a statement about the kind of everyday costs order which needs to be made where the outcome of an application involves mixed success on both sides. That reading is supported by the fact that the very next sentence in [52] involves a conclusion on just such a costs question. That sentence records his Honour's view that party-party costs were appropriate. 18 In those circumstances, we reject the Trustee's construction of [52]. His Honour was exercising the power in s 283HB for the reasons he gave at [48]-[50]. 19 The appeal must, therefore, be dismissed. Mr Myers QC sought an indemnity costs order for the appeal but the point raised by the Trustee was a real one and we see no basis upon which we could so proceed: Colgate-Palmolive Company v Cussons Pty Ltd [1993] FCA 536; (1993) 46 FCR 225 at 233-234. Nothing in these reasons should be read, however, either as foreclosing or provoking the making of any future application under s 283HB in respect of this Court's costs order. I certify that the preceding nineteen (19) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Chief Justice Allsop and the Honourable Justices Perram and Moshinsky. Associate: Dated: 27 November 2017